Borrowing From Tomorrow To Pay For Yesterday

Chatting with a contemporary in the electric consulting field last week, he made mention of a number of acquaintances who, after having paid off their mortgage fell into severe non-mortgage debt. Presumably because as the thinking goes there's all this disposable income now floating around to pay off that new automobile unit, the granite counter tops, the Monte Carlo vacation.

Only problem is that income streams in somewhat slowly compared to your streams of wants; this has always been an issue, but somehow it gets amplified as you think you can pay it off sans mortgage but you simply grow your debt too fast. You then start borrowing from tomorrow to pay for what you spent yesterday and today becomes the same as it always was -- still mired in debt.

I am not a fan of either Obama's or Paul Ryan's budget proposals as both fail to address debt; Ryan's perhaps may get to a neutral deficit, but neither stems the increase in future debt.

There is no better way, in my little opinion (and it is indeed little) to weather the storm of looming deficits and debts at the federal, state, county and local levels than to hold no personal debt. For many of us, this means renting...not a bad thing. I am acquainted with several older couples (say, 10-20 years older than I) who carry as much mortgage debt today as they did in 1987. The standard line is refinancing; they all continued to refinance with higher levels of debt than the last. But this makes supposed sense -- if you have a $16k bill on that new Tacoma at 7.2% and a few $4k credit cards at 13%, just roll those into a mortgage debt at 5.15% and write off that interest. In some respects, our tax policies have encouraged more mortgage debt, but then, with only a $45/month increase in mortgage payments now spread over three hundred and sixty months, all that remaining disposable income can now be used (you guessed it) to drive up even more debt. That Tacoma? Four years, max. Getting a bit used, eh? Trim is starting to fall off the passenger door, a coupla pebble dents in the quarter panels...time for a new Land Cruiser! And hey! And hey! Mortgage rates are now only 4.65%! Refinance yet again!

A couple I know, roughly my mom's age, owes $200,000 on the housal unit she's been living in since, perhaps, 1978. Another couple, down in the town of Franklin, in the same unit since, perhaps, 1985, still owe $220,000. A pool. A new addition. New windows. A paint job. All things driving perpetual debt.

I will continue to argue that going forward, with an entire set of governments all unwilling to agree on how to lower debts, will all fail to do so. The good news is that we are borrowing from tomorrow to pay for yesterday, but today is still lookin' good! With this reprieve, reduce your debt, hold cash instead of equities, consider metals if you've already reduced your debt, gain better control over your own requirements for living and above all, be worth more to your employer than what they are paying you. These are not things that most of us can do in a bubble, so be prepared to work with others; not easy in the land of endless suburbia where we don't depend on anything else by anyone else...

I would fail to see how following these things could possibly go wrong even supposing we have 3.8% growth for the next fifty years and some tech breakthrough yielding unlimited energy. I obviously don't see this happening, but hey, what could go wrong with being more valuable to your employer, even if you are your own employer, huh?